Oil settles higher in fiscal-cliff relief rally

Petroleum products also on the rise; natural gas pulls back

SAN FRANCISCO (MarketWatch) — Crude-oil futures rallied more than 1% Wednesday, gaining after U.S. policy makers passed a last-minute budget deal to avert the fiscal cliff of billions in spending cuts and tax hikes.

Crude for February delivery
US:CLG3
rose $1.30, or 1.4%, to settle at $93.12 a barrel on the New York Mercantile Exchange.

Markets welcome fiscal-cliff deal

(3:11)

The Senate and the House of Representatives both approved a bipartisan deal to block most impending tax increases and postpone spending cuts. What the deal means for the U.S. deficit.

Prices have been on tenterhooks for the past month, hamstrung by questions about what would happen if Congress and the White House failed to strike a fiscal-cliff deal, so some resolution out of Washington sparked a relief rally, he said.

Indicative of a relief rally, Smith said, some of that enthusiasm has subsided from earlier in the day when crude prices reached $93.87 a barrel.

Crude prices ran up as the Senate and then the House of Representatives on Tuesday approved a deal preventing a raft of austerity measures from coming into effect in 2013, which could have pushed the U.S. economy into recession.

Among its other features, the deal raises tax rates on individuals’ incomes of more than $400,000 and on couples’ incomes over $450,000, extends unemployment benefits, and delays across-the-board spending cuts for two months. See: Fiscal-cliff deal passes Congress

Worries that a deeply divided Washington would fail to reach a deal in time stirred financial markets in recent months. The approval spurred risk-on trading across most markets.

The retracing of some of crude’s gains was also helped by a strengthening of the U.S. dollar, which had traded lower earlier in the session. The ICE dollar index
DXY, -0.30%
which measures the greenback against a basket of six other currencies, rose to 79.890, up from 79.792 late Monday.

Reuters

Senate Minority Leader Mitch McConnell returns to his office after a Senate vote on the fiscal cliff.

Dollar-denominated commodities tend to rise on a weaker U.S. currency, as they get cheaper for other holders of other currencies.

Data from top energy consumer China also lent support for oil prices.

Official data released Tuesday showed that the No. 2 global economy’s manufacturing Purchasing Managers’ Index remained unchanged at 50.6 in December. While below expectations, the gauge stayed above a 50-point threshold that indicates an improvement in activity. See: China's official December manufacturing PMI unchanged

In other energy-futures trading Wednesday, gasoline for February delivery
US:RBG3
rose 33 cents, or 1.2%, to settle at nearly $2.80 a gallon, while February heating oil
US:HOG3
gained just over a penny, or 0.5%, to settle at nearly $3.05 a gallon.

By contrast, March natural gas
US:NGH13
fell 11 cents, or 3.3%, to nearly $3.26 per million British thermal units.

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